UK services growth slows sharply in Oct as uncertainty weighs: PMI

Published Wed, Nov 5, 2014 · 09:39 AM
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[LONDON] Mounting economic uncertainty in Britain hit growth in its services sector much more than expected last month, according to a survey on Wednesday that signalled a significant end-of-year slowdown in the country's recovery.

Wednesday's Markit/CIPS services purchasing managers' index (PMI) sank to a 17-month low of 56.2 in October from 58.7 in September, weaker than even the gloomiest forecast in a Reuters poll of analysts.

While the index was still above the 50 threshold that marks growth and higher than the historic average, it represented the latest in a string of weaker-than-expected British economic indicators.

Bank of England policymakers meeting this week will pay close attention to the survey as they gauge when to start finally raising interest rates.

Britain's economy now looks on track to grow around 0.5 per cent in the last three months of 2014 compared with 0.7 per cent in the third quarter, survey compiler Markit said. The Bank of England last month said it expected fourth-quarter growth of 0.8 per cent.

Markit also said Britain's economic growth could weaken further still.

A mix of worries about the euro zone, the risk of a sharp slowdown in China, uncertainty about US monetary policy - plus geopolitical fears - all tempered the service sector's recovery last month, said Markit chief economist Chris Williamson. "Slower service sector growth knocks the prospect of interest rate hikes firmly on the head," added Williamson. "An increasingly downbeat flow of economic data in recent weeks ... has thrown a cloud of uncertainty over the outlook." The BoE was already expected to keep interest rates at their record low 0.5 per cent when the Bank's monthly meeting ends on Thursday. Economists increasingly predict it will leave them on hold well into next year.

An absence of inflationary pressure in Wednesday's survey was likely to bolster that view.

Prices charged by services companies declined for the first time since May 2013, albeit only modestly, while growth of input prices eased.

Three of the BoE's most senior officials have signalled they are comfortable with record low rates over the last few weeks. Minutes from the Bank's October policy meeting showed most officials were worried about the weak euro zone economy.

Markit's composite PMI, a broader gauge of the economy that combines services, manufacturing and construction industries, fell to 56.4 from 58.1 - its lowest level since June 2013. "The surveys therefore suggest that the Bank of England will wait to gauge the full extent of the slowdown before making any decisions on policy," said Williamson from Markit.


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